Key Highlights

  • The index dropped three points to 29 in October, the lowest since June 2012, below the forecast of 31.
  • The 30-year fixed mortgage rate averaged 7.40 percent last week, the highest in nearly three years.
  • The share of builders cutting prices jumped to 43 percent, the highest in the 2020 to 2026 period.
  • More than one-third of builders reported immigration enforcement activity in their areas, causing construction delays and discouraging legal workers.

The Index Slides

US homebuilder sentiment plunged to its lowest level in nearly 14 and a half years in October as the Middle East conflict boosted mortgage rates and prices of energy-related building materials, a survey showed on Monday. The index tracks builder confidence in the market for new single-family homes, and a reading below 50 means more builders see conditions as poor than good.

The National Association of Home Builders housing market index dropped three points to 29 this month from 32 in September, the lowest since June 2012. Economists polled had forecast the index dipping to 31. The decline also reflected labor shortages amid an immigration crackdown, as well as rising costs because of tariffs on imports.

Borrowing Costs Climb

Mortgage rates have surged in recent weeks. The 30-year fixed rate averaged 7.40 percent last week, the highest level in nearly three years, mortgage finance data showed. The average stood at 7.03 percent in late September and 7.28 percent in the week to October 1, against about 6.3 percent a year earlier.

The higher borrowing costs track Treasury yields as the US-Israeli war with Iran fans inflation, and they are depressing home sales. The 10-year Treasury yield, the main benchmark for mortgages, stood at 5.11 percent on Monday. In late September that yield stood just below 5.2 percent, close to its highest since 2007. The Federal Reserve raised its target range to 3.75 percent to 4.00 percent on September 16 and meets again on October 27 and 28. September housing starts and building permits are due Tuesday from the Census Bureau.

The industry group’s chairman said builders are contending with higher costs for construction loans, building materials and diesel, as well as persistent labor shortages. More than one-third of builders nationwide reported immigration enforcement activity in their market areas during the past month, he said, causing construction delays and discouraging legal workers from reporting to work.

Price Cuts and Incentives

Sagging demand has left homebuilders with excess inventory of unsold new homes on the market, which discourages them from breaking ground on new single-family housing projects.

The share of builders reporting cutting prices to attract buyers jumped to 43 percent in October, the highest share in the 2020 to 2026 period. The average price reduction was unchanged at 6 percent for the seventh straight month. The use of sales incentives was at 65 percent, the 19th consecutive month in which at least 60 percent of builders have used them.

Sub-Indexes Fall

The survey’s measure of current sales conditions fell two points to 33, while its gauge of future sales dropped five points to 32. A measure of prospective buyer traffic tumbled five points to 18.

The group’s chief economist said higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines. As a result, buyer traffic has fallen to its lowest level since April 2012, excluding the onset of the pandemic in April 2020.

Housing and the Midterms

Rising mortgage rates and still-high home prices have put the housing market at the center of what economists call an affordability crisis heading into the November 3 midterm elections, which decide control of Congress.

President Donald Trump earlier this year refused to sign a bipartisan housing affordability bill, calling it “a big yawn” as he pressed Congress, including fellow Republicans resisting his demands, to first pass separate and contentious voting requirements.